As tax revenues increasingly fall short of what’s needed to build, operate, and maintain state- and city-owned infrastructure, governments are looking to the private sector for help. In late September, the city of Chicago announced that it received a winning bid of $2.521 billion from Midway Investment and Development Company, LLC (MIDCo) for a long-term lease of Midway Airport. Also last month, New York Governor David A. Paterson signed an executive order establishing the New York State Commission on State Asset Maximization to study potential public-private partnerships.
"As the first privatization of a major American airport, [the Midway Airport] transaction will provide unprecedented benefits for the traveling public, the airlines, and the taxpayers of Chicago," said Chicago Mayor Richard M. Daley. He said it is too early to speculate on what projects the proceeds from the airport will support, "but the potential is substantial."
Illinois state law requires that 90 percent of the net proceeds—in this case, more than $1 billion—are used for infrastructure improvements, and as much as half of the net can be used for pension funds. The use of the remaining 10 percent of net proceeds is unrestricted. The Midway transaction is enabled by the Federal Aviation Administration’s (FAA) Airport Privatization Pilot Program, adopted by statute in 1996. The statute allows as many as five U.S. airports to be privatized, only one of which can be a "hub" airport the size of Midway.
MIDCo is a consortium comprising Citi Infrastructure Investors, New York; YVR Airport Services Ltd., Vancouver, Canada; and John Hancock Life Insurance Co., Boston. YVR Airport Services owns and operates 18 airports on three continents.
Paul A. Volpe, Chicago’s chief financial officer, said that successful conclusion of this transaction—which is subject to approval by the Chicago city council, the FAA, and the Transportation Security Administration—would be the city’s third infrastructure privatization. "This transaction will allow us to make much-needed capital investments while other cities and states have suspended infrastructure improvements," Volpe said.
Meanwhile, the state of New York took steps to initiate public-private partnerships that, according to a statement from Governor Paterson’s office, "offer an opportunity for the state to more effectively make long-term capital investments, even in periods of economic distress." However, the administration said it is not considering selling any assets.
The newly established New York State Commission on State Asset Maximization will examine the role of public-private partnerships, domestically and internationally, and then consider whether this model can benefit New York. The 11-member commission also will consider whether any specific state assets are suitable candidates for such partnerships. The commission is required to submit a preliminary report of its recommendations to the governor and legislature within 90 days; a final report is due within 180 days.
"There’s a lot to do to fix New York State’s infrastructure, but there’s not a lot of money to do it with," said State Comptroller Thomas P. DiNapoli. "New York needs to craft new strategies to address our capital needs, and we need to get everyone involved—labor, business, the public sector, and the private sector. Governor Paterson has taken a strong first step toward ensuring New York can rebuild our infrastructure."